“Keynes used the ‘rest’ definition of equilibrium only with respect to employment, and this did not preclude the possibility of money-wage rates and prices changing in such a situation, as long as these changes do not have any clear effect on the level of employment. Patinkin (1965: 315) used a definition of equilibrium that referred not only to one dependent variable but to the economic system as a whole: ‘“equilibrium” means that nothing tends to change in the system.’ According to this definition, Keynes’s unemployment equilibrium is a position of ‘disequilibrium’ because of the consequent changes in the values of other variables. Patinkin was aware of the implicit definition used by Keynes. ‘All, then, that Keynes means by the statement that the system may settle down to a position of “unemployment equilibrium” is that the automatic workings of the system will not restore the system to a position of full-employment equilibrium. He does not mean “equilibrium” in the usual sense of the term that nothing tends to change in the system’ (643). Leijonhufvud (1969: 22n) also interprets Keynes’s ‘unemployment equilibrium’ as implying the weakness of the forces ‘tending to bring the system back to full employment.’” (Asimakopulos 1991: 27, n. 3)Keynes’s view was that real-world capitalist systems have a tendency to fluctuate around a state well below full employment:
“our actual experience … [sc. is] that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life.” (Keynes 2008 : 229).
Asimakopulos, A. 1991. Keynes’s General Theory and Accumulation, Cambridge University Press, Cambridge.
Keynes, J. M. 2008 . The General Theory of Employment, Interest, and Money, Atlantic Publishers, New Delhi.
Leijonhufvud, A. 1969. Keynes and the Classics: Two Lectures on Keynes’ Contribution to Economic Theory, Institute of Economic Affairs, London.